MS14/6.2: Annex 8
Market Study
Credit Card Market Study
Interim Report: Annex 8 - Review of terms and
conditions
November 2015
Interim Report: Annex 8 Review of terms and conditions
Credit Card Market Study
Abbreviations used in this paper

APR
Annual Percentage Rate

CCA
Consumer Credit (Agreements) Regulations 2010

CCD
Consumer Credit (Disclosure of Information) Regulations 2010

CONC
Consumer Credit sourcebook

SECCI
Standard European Consumer Credit Information

CONC
Consumer Credit Sourcebook
November 2015
1
Credit Card Market Study
Interim Report: Annex 8 Review of terms and conditions
1
1.1
Executive summary
We reviewed a sample of firms’ terms and conditions to better understand the
information presented to consumers when choosing and applying for a credit card.
Our review considered pre-contractual information, contractual information and the
availability of information on websites. It should be noted that we have not
undertaken a legal or compliance review of terms and conditions and that we did not
assess the terms under the Unfair Terms in Consumer Contracts Regulations 1999.1
Our review found:
Pre – contractual information:

Results across the range of cards were mixed. In some cases, information
appeared clear and fairly easy to follow, without use of complicated or legalistic
language. However, some cards did not present information as clearly.

Key information, such as rates, APRs and charges, was clear.
Contractual information:

Some providers had more than one set of terms and conditions for one card. One
used a single booklet consisting of various terms and conditions and credit
agreements for the different cards they offer. Both of these approaches can make
it difficult for consumers to identify which terms and conditions apply to them.

Some information was written in such small font that it was not easily legible.2
Availiabilty of information on card providers’ websites:

1.2
The majority of websites we reviewed were reasonably easy to navigate. We
found that, when used, the use of summary boxes presented fees and charges in
a clear and easily accessible manner.
This report outlines how we conducted our review and what we found in more detail.
1
From the 1st October 2015 Parts 1 and 2 of the Consumer Rights Act 2015 revoked and replaced the Unfair Terms in
Consumer Contracts Regulations 1999 (UTCCRs).
2
As required under CONC 3.3.2R (2) and Regulation 8 of the Consumer Credit (Disclosure of Information) Regulations
2010.
November 2015
2
Interim Report: Annex 8 Review of terms and conditions
2
Credit Card Market Study
Introduction
Background
2.1
In our terms of reference we stated:
“We consider that some features of credit cards may not be transparent. […] the
exact terms and conditions of a credit card contract (e.g. the credit limit) are not
clear to consumers until they have applied and been accepted for a specific credit
card, as the advertised terms and conditions can differ from those offered. As a
result, consumers may not have full or accurate information on the product features
that matter to them when choosing a credit card, which naturally inhibits effective
comparison of offers. […] the representative APR that some consumers may use as a
basis for informing their choice of credit card has a number of shortcomings.
Although it is a good indication of potential cost for larger-sum fixed-term loans, it
has significant limitations. For example, it is not such a good indicator of cost for
other types of credit, in particular credit cards where some consumers repay their
balance in full each month. The outcome could be that consumers relying solely or
largely on representative APR to inform their choice of credit card may choose a card
that does not best meet their needs […] We will explore whether consumers have the
relevant information on key product features at the outset and the extent to which
they consider the terms and conditions to be unclear.
The purpose of this review
2.2
The purpose of this review was to understand the consumer journey; from the very
early stages of thinking about which card provider to opt for, to the final stages of
signing a Credit Agreement. There are a number of credit card providers in the
market all offering a range of cards. We considered whether consumers are provided
with sufficient information before the point at which they make their decision - so as
to allow them to make an informed decision about which card they wish to take out.
We also reviewed what this information looks like, and whether it is easy for
consumers to understand so that they can compare products in the market.
2.3
Consumers will be presented with information at various stages of this journey. At
the outset, consumers might look for information to understand what a credit card is
and how it works. Once consumers are satisfied with the level of information they
have obtained, they might then want to shop around for the best deal, using
websites and pre-contractual information to help inform their view; so we looked at
whether contractual information reflects what consumers think they have signed up
to. We considered how easy it was for consumers to understand the contractual
information provided to them at the various stages of the process.
2.4
This report looks to answer some of these questions.
November 2015
3
Interim Report: Annex 8 Review of terms and conditions
Credit Card Market Study
Next steps
2.5
Although this report does not provide a discussion on rules and regulations and is a
factual summary of findings firms should still ensure that the information they
present to their customers is in line with the relevant rules and regulations that apply
to the consumer contracts they issue. These being, but not limited to, the Consumer
Credit Act 1974, Consumer Credit (Agreements) Regulations 2010 (CCA) and the
Consumer Rights Act 2015 (or the Unfair Terms in Consumer Contracts Regulations
1999 for contracts entered into before 1 October 2015) with regard to contractual
information and the Consumer Credit sourcebook (CONC), in particular with respect
to adequate explanations of credit agreements in CONC 4.2 3 and the Consumer
Credit (Disclosure of Information) Regulations 2010 (CCD), with respect to precontractual information.
2.6
Furthermore, firms should ensure that the information they prepare is clear, fair and
not misleading as required by CONC 3.3.1R(1). Consumers should be given the
opportunity to read relevant information and ask any questions they may have.
Information which clearly sets out how customers can contact the firm to ask
questions and obtain further information are requirements set out in CONC
4.2.5R(1)(c) and (d).
Our approach
Scope of our review
2.7
2.8
In our review of a sample of terms and conditions of 14 credit card products, we
looked at four categories of cards in particular:

0 % Balance transfers

Low and grow4

Standard interest rate5

Rewards
As part of our review, we considered the following:
Pre-contractual information

Standard European Consumer Credit Information (SECCI)6

Adequate explanations7
Websites8
Contractual information

Credit Agreement and terms and conditions9
3
Noting in particular CONC 4.2.15R which sets out adequate explanations required for credit token agreements and the
guidance in CONC 4.2.17G onwards about marketing by distance or electronic means.
4
These are credit builder cards aimed at subprime borrowers or those with little or no credit history. These start with a
low limit that is gradually raised as the borrower proves their credit-worthiness.
5
These are cards where there typically is a cost to the borrowing of credit.
6
As per the template in the Consumer Credit (Disclosure of Information) Regulations 2010.
7
See CONC 4: https://fshandbook.info/FS/html/FCA/CONC/4
8
For the purposes of this review, we reviewed websites insofar as they include pre-contractual or contractual information.
9
As per the Consumer Credit (Agreements) Regulations 2010.
November 2015
4
Interim Report: Annex 8 Review of terms and conditions
Credit Card Market Study
2.9
We looked at the information provided to consumers to understand the consumer
journey, particularly to ascertain whether a consumer is likely to understand the
information they are presented with when they are shopping around and whether
they in fact end up getting the deal they thought they would.
2.10
Although we have not undertaken a compliance or legal review of terms and
conditions we have occasionally highlighted certain findings where we considered a
reminder of the relevant legal requirement(s) could be of benefit to firms.
Structure of our review
2.11
We focused on five broad questions in our review, split between pre-contractual
information, contractual information, and a comparison between the two:
1 a) What type of credit card information is presented to the customer in the precontractual documentation? What type of information is not presented?
b) Is it easy for the customer to navigate to key features of a product via the
website?
2) How are the terms presented? Do terms seem particularly complex?
3) Were there any notable differences in information contained with the precontractual and contractual information?
2.12
This report provides a discussion on our findings in respect of the four categories of
cards reviewed. General findings are followed by a discussion of findings specific to
each category of card.
November 2015
5
Interim Report: Annex 8 Review of terms and conditions
3
Credit Card Market Study
General Findings
3.1
Across the card ranges, we found that pre-contractual information generally covered
key features (such as rates, APR and charges). However, in contrast we often found
that pre-contractual information and explanations, as required by the Consumer
Credit (Disclosure of Information) Regulations 2010 and CONC 4.2, did not always
adequately highlight the limitations of promotions (rates), of benefits (such as
cashback) or that the use of the card may result in unexpected costs (for example
gambling transactions (in the low and grow and 0% balance transfer range) are
treated as cash withdrawals).
3.2
Another significant recurring issue we found across the card ranges was the use of
inappropriately small fonts, which at times were illegible. Use of small fonts reduces
a consumer’s ability to engage with information presented to them and hinders their
ability to appreciate their rights and obligations.10
3.3
We did not find any material inconsistencies between pre-contractual and contractual
information.
3.4
We also found the following for not all, but for more than one card range:
10

Websites: across the 0% balance transfer and reward range, we found
that some providers’ key features or documentation could only be found after
a consumer had applied for a card.

Terms and conditions: across the 0% balance transfer and standard
interest rate range, we identified the use of exclusions of liability by
providers.
The requirement of CONC 3.3.2R (2) is that ‘A firm must ensure that a communication or a financial promotion…is
easily legible’. Also to note Regulation 8 of the Consumer Credit (Disclosure of Information) Regulations 2010.
November 2015
6
Interim Report: Annex 8 Review of terms and conditions
4
Credit Card Market Study
0% Balance transfers
Pre-contractual information and websites
What type of credit card information is presented to the customer in the
pre-contractual documentation? What type of information is not presented?
4.1
Pre-contractual information helps put the customer in a position to be able to assess
whether the card meets their needs and financial situation. We found that key
features, such as fees, charges and interest rates (as per the requirements of the
SECCI), were clearly set out in the sample of SECCIs reviewed, in a way which would
enable customers to assess whether the product is suitable for them. Many firms also
clearly presented the consequences of default.
4.2
We found examples of good explanations of important information such as where
information was not included in the SECCI due to the requirements of the CCD but
was highlighted instead in the Adequate Explanation required under CONC 4.2. One
such example was where a provider’s Adequate Explanation stated that other
accounts a customer had with the provider may be used to recover outstanding
payment.
4.3
Features of the card which might operate in a way as to have an adverse
consequence on a consumer were identified and presented clearly in the SECCI and
highlighted appropriately within the Adequate Explanations. The following is an
example of what we found in this context: ‘failure to make payment may lead to
impaired credit rating and prevent a customer from accessing credit or increase the
cost of credit’.
Is it easy for the customer to navigate to key features via the website?
4.4
We found that rates (headline, introductory or promotional) as well as charges and
fees were presented in different ways. Some card providers presented this
information clearly in a large, comprehensive summary box, whilst others provided a
link to their SECCI and terms and conditions. However, we did find at least one
example where some of this information could only be found when actively applying
for a card. It is worth noting that the provision of pre-contractual information to the
consumer ‘in good time before the agreement is made’ as per Regulation 3(2) of the
Consumer Credit (Disclosure of Information) Regulations 2010 would enable the
consumer to take an informed decision on whether or not to conclude a credit
agreement.
Contracts
How are the terms presented? Do any terms seem particularly complex?
4.5
The language firms used appeared to be plain and simple, however, the font used in
some cases was inappropriately small (see paragraph 3.2).11
11
To note the requirement of CONC 3.3.2R(2) and Regulation 8 of the Disclosure Regulations.
November 2015
7
Interim Report: Annex 8 Review of terms and conditions
5
Credit Card Market Study
Low and grow
Pre-contractual information and websites
What type of credit card information is presented to the customer in the
pre- contractual documentation? What type of information is not presented?
5.1
Information which is clearly presented will enable firms’ customers to decide whether
the card is suitable for them, and hence understand the key features of the contract
they enter into. This includes explaining terms that may not be easily understood or
potentially open to interpretation. We found some evidence of terms such as
‘arrears’, ‘cash advance’ and ‘money transfer’ where further explanation might be of
benefit to the consumer.
Is it easy for the customer to navigate to key features via the website?
5.2
We found that in general clear statements were provided about the features which
may make the credit provided under the agreement unsuitable for particular types of
use. 12 For example, we found that firms generally explained that these cards are
targeted at sub-prime borrowers or those with little or no credit history, and who
may wish to build up their credit.
Contracts
How are the terms presented? Do any terms seem particularly complex?
5.3
We found one example of a default charge where further explanation of the term
might be of benefit to the consumer.
12
As per our rules under CONC 4.2.5R.
November 2015
8
Interim Report: Annex 8 Review of terms and conditions
6
Credit Card Market Study
Standard interest rate
Pre-contractual information and websites
What type of credit card information is presented to the customer in the
pre- contractual documentation? What type of information is not presented?
6.1
There was some evidence of interest being applied to certain default charges, which
was not disclosed in the SECCI documentation. We remind firms of the requirement
to disclose this information as per the Consumer Credit (Disclosure of Information)
Regulations 2010, (see: regulation 3(4)(o)), as failure to include this information
may result in the consumer being unable to ascertain that default charges charged
may in fact be higher due to the interest applied13 and furthermore could also give
rise to an unenforceable agreement under section 55(2) of the Consumer Credit Act
1974.
6.2
We found one instance of a firm using an easy to read flowchart in their adequate
explanations, which a consumer may find useful.
Is it easy for the customer to navigate to key features via the website?
6.3
We found that the amount of information available on websites tended to vary from
firm to firm. In some cases, less immediately available information required more
navigation.
Contracts
How are the terms presented? Do terms seem particularly complex?
6.4
Some terms were not sufficiently explained. More clarification of these terms would
better satisfy the requirement of CONC 3.3 which requires that a firm must
communicate information to consumers in a way which clear, fair and not
misleading.
13
To note, section 86F of the Consumer Credit Act 1974 limits the charging of interest on default fees.
November 2015
9
Interim Report: Annex 8 Review of terms and conditions
7
Credit Card Market Study
Rewards cards
Pre-contractual information and websites
What type of credit card information is presented to the customer in the
pre-contractual documentation? What type of information is not presented?
7.1
We found one instance of a ‘dormancy’ fee not being included in the Adequate
Explanation. Where the Adequate Explanation does not clearly explain the relevant
areas of the SECCI where such detail can be found, a customer might not become
aware of the various charges.
7.2
We generally found that the consequences of failing to make payments as they fall
due were included in the SECCI and Adequate Explanations.
Is it easy for the customer to navigate to key features via the website?
7.3
Key features were generally easy to find. Some websites helpfully included relevant
pre-contractual documentation on the main page (where there is no requirement to
do so). With others we found that all key features could only be accessed by actively
applying for a card and clicking on the ‘apply now’ button. Consumers may not click
on the ‘apply now’ button owing to the belief that they might accidently apply for a
card that is not suited to them. By not having pre-contractual information readily
available on websites it may compromise consumers’ ability to ‘shop around’ and find
the best deal. The provision of pre-contractual information to the consumer ‘in good
time before the agreement is made’ as per Regulation 3(2) of the Consumer Credit
(Disclosure of Information) Regulations 2010 would enable the consumer to take a
more informed decision on whether to conclude a credit agreement.
Contracts
How are the terms presented? Do terms seem particularly complex?
7.4
We found examples of rewards cards that were tied to various terms and conditions
For example, for one card there may be one set of generic terms and conditions and
another set for the rewards ‘programme’. Some additional benefits such as travel
insurance may be found in another set of terms and conditions altogether.
7.5
One firm used a booklet containing terms and conditions and Credit Agreements for
more than one card which made it very difficult to understand which information was
relevant to each card.
November 2015
10
Interim Report: Annex 8 Review of terms and conditions
Credit Card Market Study
© Financial Conduct Authority 2015
25 The North Colonnade Canary Wharf
London E14 5HS
Telephone: +44 (0)20 7066 1000
Website: www.fca.org.uk
All rights reserved
November 2015
11